Credit card debt settlement - 5 Common and familiar myths debunked

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Debt settlement seems to be a feasible option for the individuals who haven't made any payments on their credit cards for around 3-4 months. Debt settlement gives a chance to the individuals to get out of credit card debt without filing bankruptcy. So, if you're trying to find your way out of the credit card debt puzzle, then you can consider debt settlement as a suitable option. Just make sure you're well aware of the debt settlement myths and facts. Otherwise, you may get into deeper debt problems.

Debt settlement – Know the difference between myths and facts

Make sure you know the differences between debt settlement myths and facts before settling your debts. This will help you save thousands of dollars. Here are some myths surrounding debt settlement:

Myth no 1 - You need to rush to a debt settlement company to settle your credit cards.

Truth: Wrong! Wrong! Wrong! You can negotiate a settlement on your own. You can contact your creditors to settle debts. Debt settlement companies work for money whereas you work for your own benefit. Due to this reason, you'll give your best effort while negotiating with the creditors. Besides, creditors often refuse to work with the settlement companies. They often prefer to directly work with the consumers instead of negotiating with a middleman.

Myth no 2 - You don't have to worry about the money sent to the settlement company.

Truth: Debt negotiators are not saints. They are professional people who work to make money out of the consumers. The trust account opened by the settlement is not FDIC insured. Several debtors act as per the advice of the debt negotiators. They stop paying the creditors, and send the monthly payments to the settlement company. In worst situations, the settlement company goes out of business or runs away with the money. The consumer won't get any interest on the amount they have saved in the trust account.

Myth no 3 - Any one can reduce outstanding balance through debt settlement.

Truth: Millions of people are trying to cut down their outstanding balance through debt settlement. Creditors are tired of hearing the pleas of the debtors. They get almost the same requests every day and unless you can prove your financial hardship, you can very well forget about debt settlement.

You have to demonstrate that you're going through financial problems due to pay cut, unemployment, martial separation, etc. If the creditor finds out that you're trying to reduce the outstanding balance in spite of having enough money, then he will reject your settlement offer immediately.

Myth no 4 - Your credit score will increase after settling credit cards.

Truth: Debt settlement drops your credit score between 70 and 125 points. As you stop making payments on the credit cards after enrolling into a settlement program, the creditors report non-payment to the credit bureaus. This makes a negative impact on your credit score.

Myth no 5 – All settlement companies offer same kind of services.

Truth: Not all the settlement companies are genuine. There are some scam companies who will ask you to pay advance fees for settlement services. They will ask you save money in the trust account every month. They won't allow you to access or manage your trust account. A fraudulent settlement company won't negotiate with the creditors even after you have saved enough money in the account. Rather, they will ask you to pay more money.

Lastly, a lot of people believe that debt settlement or bankruptcy can only help them to get out of credit card debt, but this is not true. Debt settlement is not the end of the road. You can get rid of credit card debts though credit card debt consolidation or management too. Other than that, you can enroll into a hardship program and pay off the debt in small monthly payments.

Last Updated on: Tue, 11 Dec 2012

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